The Health 202: States are targeting a key middleman in the drug-pricing chain

A customer waits at the counter of a CVS Pharmacy store. CVS Caremark, part of CVS Health, is one of the nation's largest pharmacy benefit managers. (REUTERS/Mario Anzuoni/File Photo)

Note to readers: Paulina Firozi, who helps produce The Health 202 every day, wrote today's Prognosis. Follow her here.

States are increasingly taking aim at an obscure but important player in the pricing chain when it comes to prescription drugs: pharmacy benefit managers (PBMs).

President Trump decried PBMs as “dishonest, double-dealing” middlemen during his speech on drug costs this month. And they’re becoming more of a target of policymakers and federal officials as public anger increases at skyrocketing prescription drug prices.

Here’s why they’re being villainized: PBMs act as a negotiator between drug companies and insurers to determine which drugs are covered by a given health plan. The PBM negotiates a discount and drug companies pay the PBM a rebate to make sure their drug is listed by insurance companies. But that rebate is not always passed on to consumers -- instead, it's mainly being pocketed by the insurers and the PBMs, a dynamic that prompts drugmakers to push prices even higher. Many policymakers complain that PBMs aren’t acting transparently, making it nearly impossible to figure out the fair price of a given medicine.

State lawmakers have introduced at least 83 bills targeting PBMs across 33 states either being considered or tha thave been enacted, according to the National Academy for State Health Policy. They range from bills requiring disclosure about PBMs's business relationships to measures that outlaw “gag clauses” preventing pharmacists from telling consumers about cheaper drug options. And more are probably on the way.

This month, the Connecticut legislature unanimously passed a first-in-the-nation bill calling for more transparency about PBMs’s transactions with drug companies. The bill requires PBMs disclose the rebates they receive from drug companies, the amount passed on to consumers and the amount they pocket themselves

“This whole system, the prescription drug system, is super confusing, but the most confusing part of it is the PBM piece,” said Connecticut State Rep. Sean Scanlon, a Democrat who co-sponsored the bill. “That’s because A, most people don’t even know what a PBM is and B, if they do know what it is, there is zero public information being shared about what’s happening with the rebates.”

“That exchange of money that happens from the PBM to the insurer is literally life or death to somebody who is taking a prescription drug,” Scanlon said.

BIG NEWS: my prescription drug price transparency bill that holds drug companies accountable for large increases just unanimously passed the State Senate and is heading to the Governor's desk! 🤜🏼@ComptrolLembo

The Pharmaceutical Care Management Association (PCMA), the lobbying group for PBMs, says it typically reduces costs of prescription drugs by 30 percent through negotiations.

But Lindsay Bealor Greenleaf, director at health-care consulting firm ADVI, said PBMs are under a spotlight because they largely operate within a “black box.” For example, even groups hiring PBMs to negotiate drug prices on their behalf — such as states, unions and other employers — don’t know what PBMs receive in rebates, she said.

Tom Bulleit, a health-care partner at Ropes & Gray, said another reason PBMs are a target is that drug companies are on the defense. “The drug manufacturers have been successful in pointing fingers at PBMs for their contribution to steer the debate away from whether there should be federal government negotiation on list prices or other kinds of government-imposed price control,” he said.

There are four main categories of legislation at the state level that target these middlemen, Bulleit told The Health 202. Some states are aiming to adopt more than one:

1. Blocking gag clauses, which are included in PBMs's contracts and prevent pharmacists from telling patients about cheaper drug options. Such a bill would allow pharmacists to tell consumers, for example, when paying cash would cost less than using their insurance.

2. Requiring PBMs to obtain a specific license from the state to operate legitimately.

3. Regulating PBMs’s use of maximum allowable cost lists, which they generate specifying the maximum price an insurance plan will pay for drugs when there is a generic or competitor available. Some states want PBMs to be transparent about how they came up with this list and provide the pharmacy the ability to appeal the maximum reimbursement rate.

4. Requiring the intermediaries to post information about what they earn in rebates from drug manufacturers. This is in the bill Connecticut just passed.

“With a simple calculator, every consumer in Connecticut is going to be able to know exactly how much money was passed on to them or what percentage was passed on to them versus how much was pocketed,” Scanlon said about his bill, which is now awaiting Gov. Dannel Malloy’s (D) signature.

In Alaska, another bill targeting PBMs passed the legislature two weeks ago and is headed to the governor’s desk. The bill looks to create more transparency in the appeals process for when pharmacies dispute the reimbursement they receive from PBMs for medication, and also restricts the gag clauses in contracts between PBMs and pharmacies, according to local radio station KFSK.

For its part, PCMA says regulations from states will raise drug prices.

In a statement to The Health 202, the group said the Connecticut bill would “undermine” the negotiation process and prevent groups hiring PBMs from getting the lowest possible drug cost for their enrollees.

As the states continue to go after PBMs, the federal government is sounding the alarm, too. During his drug pricing speech, Trump vowed to “eliminate the middlemen.”

HHS Secretary Alex Azar has also argued for getting rid of the rebate system in which PBMs operate. “What if instead we said no rebates, flat price, fixed price in the contracts,” he told reporters at a briefing this month. “Take away this whole, what’s called the gross-to-net spread that removes that and makes people indifferent to what the list price is in that system and takes away the incentives where even the pharmacy benefit manager makes money from higher list prices.”

Greenleaf said eliminating PBMs, at least in the short term, doesn’t seem realistic. “But I think there is a real question about what benefit they are serving,” she said.

“There will be always be focus on PBMs and the rebate process so long as a patient cost-sharing at the pharmacy counter is based off a pre-rebate list price,” she added. “So long as that is happening, you’re always going to be questioning what exactly PBMs are doing and who these rebates are really benefiting.”

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Maggy Krell, chief counsel of Planned Parenthood Affiliates of California, speaks during a news conference in in LA with California Attorney General Xavier Becerra about the Trump administration's policy changes around family planning.(AP Photo/Brian Melley)

— Trump plans to unveil a proposal on Tuesday evening to withhold Title X family planning dollars from groups that provide abortions or referrals in a speech to antiabortion group Susan B. Anthony List, The Washington Post's Ariana Eunjung Cha, Juliet Eilperin and Josh Dawsey report. Vice President Pence hosted a Thursday dinner at his residence with conservative leaders ahead of the decision. Antiabortion groups, who are enthusiastic about the policy shift, were briefed in detail about the proposal in a conference call Friday morning.

The plan — which delivers on a long-held objective of abortion opponents — would require a “bright line” of physical and financial separation between clinics that receive at least $260 million annually in federal funding and any organization that provides abortions or referrals to abortion clinics. It could deprive Planned Parenthood and other women's health centers of millions of dollars a year. White House press secretary Sarah Huckabee Sanders said that the plan “would ensure that taxpayers do not indirectly fund abortions” and that Trump “is pleased to support” it.

President Trump shakes hands with acting Department of Veterans Affairs Secretary Robert Wilkie after announcing he will nominate him to lead the department. (AP Photo/Evan Vucci)

— Trump has nominated Robert Wilkie -- who is acting secretary of the Veterans Affair’s Department -- to be its permanent leader, ending a long ongoing process to fill the post. Wilkie is an Air Force Reserve officer who has worked on Capitol Hill and the Pentagon under two administrations, our colleagues Lisa Rein and Paul Sonne report.

The pick puts a Washington insider in the role to restore confidence in an agency that has been fraught with political infighting. Wilike "was unaware Trump’s announcement was coming, although he was a leading contender for the job and recently flew to the president’s private Mar-a-Lago Club in South Florida to meet with Marvel Entertainment chief executive Ike Perlmutter, an unofficial adviser to Trump on veterans issues,” Lisa and Paul write. “Wilkie could bring stability to VA’s sprawling $186 billion health-care, benefits and cemetery system, which during Trump’s 16 months in office has grown more dysfunctional despite the president’s campaign pledge to deliver reform."

During the confirmation process, Wilkie will likely face questions from senators about how far he would go to shift medical appointments to the private sector at taxpayer expense.

AHH, OOF and OUCH

Credit: “Henrietta Lacks (HeLa): The Mother of Modern Medicine” by Kadir Nelson, oil on linen, 2017. Collection of the Smithsonian National Portrait Gallery and National Museum of African American History and Culture (National Portrait Gallery)

AHH: If you read the excellent 2010 book "The Immortal Life of Henrietta Lacks," you'll especially appreciate this: A painting of Lacks now sits in the National Portrait Gallery to commemorate how she provided a line of human cells involved in some of medicine’s greatest breakthroughs. Before Lacks died of cervical cancer in 1951, doctors took cells from a biopsied tumor and, without her permission or knowledge, began using them for research that continues today. Because Lacks’s cells reproduce indefinitely, scientists can use them to replicate experiments.

In the 2017 portrait by Kadir Nelson, she’s vibrant but modest,Erin Blakemore writes for The Post. “In Nelson’s portrait, newly acquired by the Smithsonian and on display now, she’s completely human .... Look a bit closer, though, and you’ll find hints of Lacks’s rich, controversial afterlife,” Erin writes. “Her dress is missing buttons, a nod to how her cells were taken. Cell-like flowers bloom on her dress. She may look like an ordinary woman, but Nelson won’t let you forget her importance: She stands in front of wallpaper emblazoned with the 'flower of life,' a geometric pattern that represents immortality.”

Member of a Red Cross team don protective clothing before heading out to look for suspected victims of Ebola, in Mbandaka, Congo. (Karsten Voigt/International Federation of Red Cross and Red Crescent Societies via AP)

OOF: The United States plans to provide several million dollars to support the response to the Ebola outbreak in Congo, our colleague Lena H. Sun reports. While the World Health Organization said the outbreak does not yet meet the criteria of an international public health emergency, the WHO said Friday it requires a “vigorous response” from the international community to prevent an escalation in the outbreak. Details of the plan to provide funding for the response effort are still being finalized and are expected to be announced this week.

“The discovery this week of at least one case in Mbandaka, a densely populated port city on the eastern bank of the Congo River, has raised concerns about the potential for rapid spread of the disease, which had previously been limited to a remote area in the rain forest of Congo’s Equateur province,” Lena reports. “WHO officials estimate that outbreak-control efforts will cost $26 million over the next three months. So far, the WHO has received commitments for about $9 million.”

A woman waits to ask a question during an "egg-freezing party" in Beverly Hills, Calif., in 2015. (Patrick T. Fallon for The Washington Post)

OUCH: A new study has found half of women have some degree of regret a few years after having their eggs frozen. While most of the women surveyed said such regret was mild, 16 percent described moderate to severe regret, The Post’s Ariana Eunjung Cha reports.

The study also found a marked number of the surveyed women “grossly overestimated the probability of having a child, with some believing they had a 100 percent likelihood of having a child with their banked eggs,” Ariana reports. There was a correlation between regret and women who got a lower number of eggs in their egg-freezing cycle, with those who got 10 or fewer eggs being four times more likely to feel regret.

The study, the first exploring the patient perspective on elective egg freezing, included 503 women who froze their eggs between 2012 to 2016. Most of the women said they felt good about undergoing the procedure. The study found 89 percent said they were glad they froze their eggs, even if they never used them, and 88 percent said the procedure made them feel like they had more options. Another 80 percent said felt they had adequate information about the decision to freeze and store eggs.

TRUMP TEMPERATURE

First lady Melania Trump speaks on her initiatives during an event in the Rose Garden in early May. (AP Photo/Susan Walsh)

— First lady Melania Trump was released from the hospital Saturday morning after undergoing a kidney procedure earlier in the week. An aide said she returned to the White House “in high spirits,” The Post's David Nakamura reports. Trump spent five nights at Walter Reed National Military Medical Center in Bethesda after undergoing an embolization procedure Monday to treat a benign kidney condition. President Trump visited her three times during the week and tweeted Saturday afternoon that his wife was home and doing “really well.”

Great to have our incredible First Lady back home in the White House. Melania is feeling and doing really well. Thank you for all of your prayers and best wishes!

— Lawmakers failed to pass a sweeping farm bill in the House on Friday in a 213 to 198 vote, with 30 Republicans joining 183 Democrats to defeat the bill. “With moderate Republicans maneuvering to force a vote on legislation offering citizenship to some younger immigrants who arrived in the country as children, conservatives revolted,” The Post’s Erica Werner and Mike DeBonis report. “The farm bill became a bargaining chip as they lobbied leadership for a vote on a hard-line immigration bill…. The farm bill itself became practically a sideshow, despite its importance to agriculture and the significant changes it would institute to food stamp programs.”

The measure broke open partisan House divisions as Democrats abandoned negotiations with Republicans over the food stamp changes, which would require adults to spend 20 hours per week working or undergoing job training as a condition to receive benefits. Democrats argued that up to a million or more people would lose benefits, as most states wouldn’t have the resources to set up necessary training programs, while Republicans argued the food stamp changes are a reasonable way to help adults get to work, our colleagues note.

Either way, the House farm will would have likely been a non-starter in the Senate, which is working on its own farm bill. Our colleague Caitlin Dewey wrote before the House bill failed that it provided a “snapshot of where food politics stands” and highlighted six issues that could surface in the Senate: food stamps, sugar reform, school lunch, farm subsidies, cage-free eggs and conservation.

OPIOID OPTICS

Attorney General Jeff Sessions speaks at the National Sheriffs' Association D.C. Opioid Roundtable on May 3. (AP Photo/Susan Walsh)

— On Friday, the Justice Department rescinded its opioid sales suspension order against a Louisiana drug distributor it accused of failing to report unusually large shipments of narcotics to independent drugstores, The Post's Sari Horwitz and Scott Higham report.

Two weeks ago, the DEA suspended opioid sales by Shreveport company Morris & Dickson, accusing it of failing to “properly identify large suspicious orders for controlled substances sold to independent pharmacies.” The suspension order against Morris & Dickson was the first time in six years the DEA had taken such drastic measures against a distributor. The company immediately disputed the allegation.

Friday’s reversal “is a striking vindication for our family company,” said Paul Dickson, Morris & Dickson’s president. “This proves what we’ve said all along — that DEA’s hasty action was unjustified. We have always taken our responsibility to prevent diversion seriously.” Justice Department spokesman Ian Prior said the rescission of the DEA’s immediate suspension order would give the agency “the opportunity to further review” the case while continuing to investigate the company.

Commissioner Scott Gottlieb said a proposal to have pharmaceutical companies include drug prices in ads has prompted a series of questions, including exactly how consumers would benefit and whether the government can legally require the disclosures.

Stat News

DAYBOOK

Coming Up

The Senate Health, Education, Labor and Pensions Committee holds a hearing on addressing shortages and improving care on Tuesday.

The House Veterans Affairs Committee holds a hearing on “Assessing VA's Governance Structure” on Tuesday.

The Senate Health, Education, Labor and Pensions Committee holds an executive session on “Pandemic and All-Hazards Preparedness and Advancing Innovation Act of 2018” on Wednesday.

The Senate Appropriations Subcommittee on Interior, Environment and Related Agencies holds a hearing on the Indian Health Service 2019 budget on Wednesday.

The House Veterans Affairs Subcommittee on Economic Opportunity holds a legislative hearing on Wednesday.

The Senate Banking, Housing and Urban Affairs Committee holds a hearing on the status of the “Housing Finance System” on Wednesday.

The House Energy and Commerce Subcommittee on Health holds a hearing on “Reauthorization of the Children’s Hospital Graduate Medical Education Program” on Wednesday.